Guarding the Family Fortune

NY Times Editorial, April 8, 2009

Last week, as the unemployment rate hit a 25-year high and nearly one in 10 Americans was receiving food stamps, 10 Democrats in the Senate joined all 41 Republican senators to cut estate taxes for the wealthiest families. The provision would funnel an additional $91 billion over 10 years to the heirs of megafortunes, money that would otherwise have been paid in federal taxes or donated to charity.

With economic pain and suffering on the rise, how do the senators justify a big tax cut for multimillionaires? By asserting that an estate tax cut is just what struggling Americans need.

Senator Blanche Lincoln, a Democrat of Arkansas, co-sponsored the measure with Senator Jon Kyl, a Republican of Arizona. She said it was critical to creating jobs through small businesses. “With all the money we’ve spent to help the economy, very little of it has filtered down to Main Street and family-owned businesses,” she said.

The implication is that upon the death of an owner, estate taxes typically devastate small businesses and the jobs they provide. That is swill.

Under today’s estate tax, which is retained in both the House version of the budget and in President Obama’s version, 99.8 percent of estates will never owe any estate tax. That’s because the tax applies only to estates that exceed $7 million per couple or $3.5 million for individuals, and a vast majority of American families are not and never will be that wealthy.

Of the tiny number of estates that are taxable, almost none are small businesses. A new analysis by the Tax Policy Center found that under 2009 law, only 100 small businesses and family farms would owe any estate tax in 2011. And almost all such estates are able to pay the tax bill without having to sell business assets, according to a report by the Congressional Budget Office. The Lincoln-Kyl tax cut would raise the estate-tax exemption to $10 million per couple ($5 million for singles) and, in an even bigger giveaway to the superrich, lower the top rate from 45 percent to 35 percent.

That sure would enrich the heirs of America’s biggest fortunes. It would not jump-start job creation on Main Street.

In addition to Ms. Lincoln, other Democratic senators voting for the estate tax cut were Max Baucus and Jon Tester of Montana, Evan Bayh of Indiana, Maria Cantwell and Patty Murray of Washington, Mary Landrieu of Louisiana, Ben Nelson of Nebraska, Bill Nelson of Florida and Mark Pryor of Arkansas.

Video Dog: Henry Paulson on How He'll Protect the Taxpayers

From Hype to Fear

January 7, 2008
Op-Ed Columnist, NY Times

By Paul Krugman

The unemployment report on Friday was brutally bad. Unemployment rose in December, while job creation was minimal — and it’s highly likely, for technical reasons, that the job number will be revised down, showing an actual decline in employment.

It’s the latest piece of bad news about an economy in which the employment situation has actually been deteriorating for the past year. It’s no longer possible to hope that the effects of the housing slump will remain “contained,” as one of 2007’s buzzwords had it. The levees have been breached, and the repercussions of the housing crisis are spreading across the economy as a whole.

It’s not certain, even now, that we’ll have a formal recession, although given the news on Friday you have to say that the odds are that we will. But what is clear is that 2008 will be a troubled year for the U.S. economy — and that as a result, the overall economic record of the Bush years will have been dreary at best: two and a half years of slumping employment, three and a half years of good but not great growth, and two more years of renewed economic distress.

The November election will take place against that background of economic distress, which ought to be good news for candidates running on a platform of change.

But the opponents of change, those who want to keep the Bush legacy intact, are not without resources. In fact, they’ve already made their standard pivot when things turn bad — the pivot from hype to fear. And in case you haven’t noticed, they’re very, very good at the fear thing.

You see, for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

When the economy is doing reasonably well, the debate is dominated by hype — by the claim that America’s prosperity is truly wondrous, and that conservative economic policies deserve all the credit.

But when things turn down, there is a seamless transition from “It’s morning in America! Hurray for tax cuts!” to “The economy is slumping! Raising taxes would be a disaster!”

Thus, until just the other day Bush administration officials were in denial about the economy’s problems.

They were still insisting that the economy was strong, and touting the “Bush boom” — the improvement in the job situation that took place between the summer of 2003 and the end of 2006 — as proof of the efficacy of tax cuts.

But now, without ever acknowledging that maybe things weren’t that great after all, President Bush is warning that given the economy’s problems, “the worst thing the Congress could do is raise taxes on the American people and on American businesses.”

And even more dire warnings are coming from some of the Republican presidential candidates. For example, John McCain’s campaign Web site cautions darkly that “Entrepreneurs should not be taxed into submission.

John McCain will make the Bush income and investment tax cuts permanent, keeping income tax rates at their current level and fighting the Democrats’ plans for a crippling tax increase in 2011.”

What “crippling” tax increase, which would tax entrepreneurs into submission, is Mr. McCain talking about?

The answer is, proposals by Democrats to let the Bush tax cuts for people making more than $250,000 a year expire, returning upper-income tax rates to the levels that prevailed in the Clinton years.

And we all remember how little entrepreneurship there was, how weakly the economy performed, during the
Clinton years, right? Oh, wait. (I’ve put some charts comparing job performance during the Clinton and Bush years on my Times blog, krugman.blogs.nytimes.com. It’s pretty startling how comparatively weak the Bush era looks.)

Never mind. The whole point of scare tactics is that they can work even in the face of inconvenient facts.

And what I’m not sure about is whether the Democrats are ready for the fight they’re about to face.

Not to put too fine a point on it, Barack Obama won his impressive victory in Iowa with a sunny, upbeat message of change.

But there’s a powerful political faction in this country that understands very well that any real change will create losers as well as winners. In particular, any serious progressive reform of health care, let alone a broader attempt to reduce middle-class insecurity and inequality, will have to mean higher taxes on the affluent. And members of that faction will do whatever it takes to scare people into believing that change means disaster for the economy.

I don’t think they’ll succeed. But it would be a big mistake to assume that they won’t.

Winter of Our Discontent, The Rising Inequality of 2 Americas

November 26, 2007
By PAUL KRUGMAN
Op-Ed Columnist , NY Times

“Americans’ Economic Pessimism Reaches Record High.” That’s the headline on a recent Gallup report, which shows a nation deeply unhappy with the state of the economy. Right now, “27% of Americans rate current economic conditions as either ‘excellent’ or ‘good,’ while 44% say they are ‘only fair’ and 28% say they are poor.” Moreover, “an extraordinary 78% of Americans now say the economy is getting worse, while a scant 13% say it is getting better.”

What’s really remarkable about this dismal outlook is that the economy isn’t (yet?) in recession, and consumers haven’t yet felt the full effects of $98 oil (wait until they see this winter’s heating bills) or the plunging dollar, which will raise the prices of imported goods.

The response of those who support the Bush administration’s economic policies is to complain about the unfairness of it all. They rattle off statistics that supposedly show how wonderful the economy really is. Many of these statistics are misleading or irrelevant, but it’s true that the official unemployment rate is fairly low by historical standards. So why are people so unhappy?

The answer from Bush supporters — who are, on this and other matters, a strikingly whiny bunch — is to blame the “liberal media” for failing to report the good news. But the real explanation for the public’s pessimism is that whatever good economic news there is hasn’t translated into gains for most working Americans.

One way to drive this point home is to compare the situation for workers today with that in the late 1990s, when the country’s economic optimism was almost as remarkable as its pessimism today. For example, in the fall of 1998 almost two-thirds of Americans thought the economy was excellent or good.

The unemployment rate in 1998 was only slightly lower than the unemployment rate today. But for working Americans, everything else was different. Wages were rising, yet inflation was low, so the purchasing power of workers’ take-home pay was steadily improving. So, too, were job benefits, including the availability of health insurance. And homeownership was rising steadily.

It was, in other words, a time when Americans felt they were sharing in the country’s prosperity.

Today, by contrast, wage gains for most workers are being swallowed by inflation. In fact, the reality for lower- and middle-income workers may be worse than the official statistics say, because the prices of necessities like food, transportation and medical care are rising considerably faster than the Consumer Price Index as a whole. One striking statistic: the cost of a traditional Thanksgiving turkey dinner was 11 percent higher this year than last year.

Meanwhile, the percentage of Americans receiving health insurance from their employers, which began to decline in 2001, is continuing its downward trend. And homeownership, after rising for several years on a tide of subprime mortgages — well, you know how that’s going.

In short, working Americans have very good reason to feel unhappy about the state of the economy. But what will it take to make their situation better?

The leading Republican candidates for president don’t even seem to realize that there’s a problem. A few months ago Rudy Giuliani, denouncing Hillary Clinton’s economic proposals, declared that “she wants to go back to the 1990s” — as if that would be a bad thing.

In fact, memories of how much better the economy was under Bill Clinton will be a potent political advantage for the Democrats next year.

But simply putting another Clinton, or any Democrat, in the White House won’t ensure that the good times will roll again. President Clinton was a good economic manager, but much of the good news during the 1990s reflected events that won’t be repeated, including low oil prices and the great medical cost pause — the temporary leveling off of health care spending as a percentage of G.D.P. that took place in the 1990s despite his failure to pass health care reform.

And there are good reasons to think that the negative effects of globalization on the wages of some Americans are larger than they were in the ’90s. That’s a hugely contentious issue within the progressive movement, with no easy resolution. I’ll write more about it in the months ahead.

Despite these caveats, Democrats have every right to make a political issue out of the failure of the Bush economy to deliver gains to working Americans — especially because conservatives continue to insist that tax cuts for the affluent are the answer to all problems.

But Democrats shouldn’t kid themselves into believing that this will be easy. The next president won’t be able to deliver another era of good times unless he or she manages to tackle the longer-term trends that underlie today’s economic disappointment: a collapsing health care system and inexorably rising inequality.

Patients Without Borders

Note from Greetings: It's a sad statement when our country is in need of 3rd world services due to the inactions of this country

November 18, 2007

By SARA CORBETT, NY Times

Long before the dentists and the doctors got there, before the nurses, the hygienists and X-ray techs came, before anyone had flicked on the portable mammography unit or sterilized the day’s first set of surgical instruments, the people who needed them showed up to wait. It was 3 a.m. at the Wise County Fairgrounds in Virginia — Friday, July 20, 2007 — the start of a rainy Appalachian morning. Outside the gates, people lay in their trucks or in tents pitched along the grassy parking lot, waiting for their chance to have their medical needs treated at no charge — part of an annual three-day “expedition” led by a volunteer medical relief corps called Remote Area Medical.

The group, most often referred to as RAM, has sent health expeditions to countries like Guyana, India, Tanzania and Haiti, but increasingly its work is in the United States, where 47 million people — more than 15 percent of the population — live without health insurance. Residents of remote rural areas are less likely than their urban and suburban counterparts to have health insurance and more likely to be in fair or poor health.

According to the Department of Health and Human Services, nearly half of all adults in rural America are living with at least one chronic condition. Other research has found that in these areas, where hospitals and primary-care providers are in short supply, rates of arthritis, hypertension, heart ailments, diabetes and major depression are higher than in urban areas.

And so each summer, shortly after the Virginia-Kentucky District Fair and Horse Show wraps up at the fairgrounds, members of Virginia Lions Clubs start bleaching the premises, readying them for RAM’s volunteers, who, working in animal stalls and beneath makeshift tents, provide everything from teeth cleaning and free eyeglasses to radiology and minor surgery. The problem, says RAM’s founder, Stan Brock, is always in the numbers, with the patients’ needs far outstripping what his team can supply. In Wise County, when the sun rose and the fairground gates opened at 5:30 on Friday morning, more than 800 people already were waiting in line. Over the next three days, some 2,500 patients would receive care, but at least several hundred, Brock estimates, would be turned away. He adds: “There comes a point where the doctors say: ‘Hey, I gotta go. It’s Sunday evening, and I have to go to work tomorrow.’ ”

A Backlash Against Billionaires

Note from Greetings: Sounds like it's time for another FDR. Look up Edwards' stand on "One America", and the ever increasing separation of the ultra-rich from, well... the rest of the U.S.

By David Ignatius Washington Post - Thursday, July 19, 2007; Page A19

For mysterious reasons, people can suddenly become indignant about government policies they have accepted for years as a matter of course. Such a seismic shift seems to be happening in public attitudes toward taxation of America's super-rich financiers.

The three leading Democratic candidates -- Hillary Clinton, Barack Obama and John Edwards-- all announced recently that they support higher taxes on what's known as "carried interest," a form of compensation received by financial moguls that has created some of the biggest new fortunes on Wall Street.

We may be seeing a political bubble bursting: For decades, the capitalists who ran private equity, venture and hedge funds managed to convince Congress that the 20 percent carried-interest profit share they took on deals wasn't ordinary income (taxed at up to 35 percent) but a capital gain (taxed at 15 percent), even though they typically were risking almost none of their own capital. This gross inequity was taken as a financial fact of nature. But no more.

Even the wealthy -- at least those with social consciences -- seem to share the new concern about restoring fairness to the tax system. The most prominent critic is mega-billionaire Warren Buffett, chief executive of Berkshire Hathaway and a director of The Washington Post Co. He famously admonished his fellow moguls a month ago that they were paying a lower tax rate than the people who cleaned their offices -- and offered them $1 million if they could prove otherwise.

Buffett is hardly alone in his discomfort with a system that has led to an ever-wider disparity in the distribution of income. That's what gives this movement traction: Some of the people who know Wall Street best understand how unfair the tax system is. A good example is Robert Rubin, a former Treasury secretary and, more to the point, a former head of Goldman Sachs. He recently joined those arguing that carried interest amounts to a fee paid to money managers and should thus be taxed as ordinary income.

A billionaire who runs one of the leading hedge funds wrote me in an e-mail last week: "Amusing what is going on in the tax charades of the money managers. How in the world anyone can uphold those [making] egregious amounts of money paying low or no taxes is really becoming laughable. . . . The private equity guys I know admit they do not have an argument that holds water." This financier described watching a production of "Animal Farm" and realizing that "the vastness of the inequity that is escalating geometrically is just, well, Orwellian."

Another financier who heads a private equity fund with more than $5 billion in investments offers a similarly scorching indictment of the system. The argument that the 20 percent he automatically takes away from profitable deals should be taxed as a capital gain is "completely ridiculous," he says. Most firms put only a tiny amount of their own capital at risk -- often as little as two-tenths of 1 percent, or $2 million on a $1 billion deal. (Private equity refers to funds that use a mix of debt and private capital to buy up companies; typically they pay back the loans by cutting costs.)

The giant private equity funds are nervous enough about the pressure building for tax changes that a few months ago they created their own Washington trade group, the Private Equity Council, which is already producing studies to justify the existing tax breaks. Its Web site explains that although fund managers may be putting up little of their capital, they deserve special tax breaks because they are contributing "sweat equity." Try telling that to the guy on the shop floor who's actually sweating -- and paying taxes at a far higher rate.

A measure of just how rich the new financiers are is a list compiled annually by Alpha magazine of the top 25 hedge fund managers. Average earnings for these financial titans last year were $570 million, an increase of 57 percent from 2005. "In total, the top 25 earners raked in more than $14 billion, equivalent to the GDP of Jordan or Uruguay," writes Alpha. You read sentences like that and you wonder why there isn't a revolution against a global financial system that produces such disparities.

Is Alpha's readership of tycoons embarrassed by these numbers? Apparently not. A June editorial urged greater political activism by the super-rich in Washington to save their tax breaks. "The time is now," the article warned. If current trends continue, "we may wake up one day to find fundamental changes affecting our business." What a happy thought.

The writer is co-host of PostGlobal, an online discussion of international issues. His e-mail address is davidignatius@washpost.com.